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How to compare business loan offers?

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Compare the general characteristics of the business loan

A business loan has several characteristics. It is defined in particular by an interest rate , a duration and repayment terms . These three elements determine the amount of your loan annuities. They are therefore the first criterion for comparing your banking proposals.

First of all, the interest rate has a direct impact on the total cost of your business loan. The higher it is , the more your financing will cost you . You must, of course, compare it but it should not represent your only decision criterion.

Indeed, a rate is assessed according to the duration of the loan. A loan granted over 20 years presents a greater risk of default than a loan concluded over 5 years. To set its rate, the bank takes into account several parameters, and in particular the risk that your project generates in its eyes.

Finally, the duration of the loan must be consistent with the purpose of the financing . Your major investments (equipment, machines, etc.) are financed over a period of up to 10 years. Your operating cycle, meanwhile, is financed in the short (or even very short) term, at most over 2 years…

In conclusion, the longer the term and the lower the interest rate, the lower your monthly payments will be. But a longer term can also lead to a higher cost of credit…

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Financial institutions can compensate for a low interest rate with immediate withdrawals. These so-called “accessory” costs can sometimes represent a significant sum. You have to factor that into your reasoning. These are essentially administrative , management and guarantee costs . Be aware, as such, that the administrative fees are negotiable.

Normally, each loan proposal must contain information called the Global Effective Rate (TEG) . This rate is the real cost of credit. It includes not only the interest paid but also the commissions charged by the bank. It can serve as an effective comparison criterion.

Compare the guarantees required by credit institutions

This is another important comparison criterion . Most banks (if not all…) will require guarantees on the sums lent. The purpose of these guarantees is to enable it to recover the funds in the event of default .

There are different forms of bank guarantees . The most used in practice are:And the personal guarantee of the manager/entrepreneur.
The guarantee that presents the most risk for an entrepreneur is the personal surety. This is the most dangerous bank protection mechanism since it involves your personal assets…

Compare the professional insurance offered

You can (and in some cases should) take out insurance to cover the impact of certain claims on your loan repayments . It can be an accident leading to incapacity (permanent or temporary) or even death. This assurance calls for several remarks.

First, beware of very low insurance rates. They can hide poor coverage and/or a multitude of exclusions. This would lead you to have to financially assume the consequences of the disaster yourself (and therefore the repayment of the loan).

Then, carefully study the conditions of support and compensation . Many parameters come into play:

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